By Mel Gunasekera, AFP

COLOMBO — Sri Lanka will relax foreign exchange and investment rules in a budget to be presented Monday as it seeks to spur investment in the island recovering from a bloody civil war, analysts say. Sri Lankan troops crushed a 37-year separatist revolt by Tamil Tiger guerrillas last year and the government hopes that the prospects of fast-paced economic expansion will woo foreign investors. “We want to make it easier for foreigners to come here and do business and for our locals to do the same outside Sri Lanka,” Central Bank of Sri Lanka governor Nivard Cabraal told AFP. President Mahinda Rajapakse, who also serves as the island’s finance minister, will present the budget in parliament on Monday. He vowed to turn his battle-scarred nation into the economic “wonder of Asia” when he was sworn in Friday for a second six-year term.

“The plethora of exemptions aimed at attracting investment during the domestic conflict are expected to be streamlined (in the budget),” Citi Group Sri Lanka analyst Anushka Shah said. The president, whose swearing in came 10 months after his re-election victory in January’s presidential polls, said last week his handling of the economy would replicate his military success in defeating the Tamil Tigers. Sri Lanka’s economy has been on a roll with the central bank forecasting it will grow eight percent in 2010, up from 3.5 percent last year. Rajapakse has promised to double per capita gross domestic product to US$4,000 by the end of his second term in 2016. Sri Lankans, in turn, will be allowed to invest overseas while Sri Lankan companies will get approval to list abroad, analysts forecast.

Foreign investors are hoping Rajapakse also opens up rebuilding work in war-torn areas and infrastructure projects to private capital. These areas are currently restricted to state firms, with help from friendly donors such as China and India. Rajapakse has unveiled a series of ambitious infrastructure projects, including a Chinese-funded, US$1.5-billion port in the southern town of Hambantota. Sri Lanka’s economy has bounced back since it sought an IMF bailout worth US$2.6 billion in 2009 to avert a balance of payments crisis after the island’s foreign reserves slipped to under a billion dollars last year. Since then, the central bank has built up a record US$7 billion in reserves, largely from selling government bonds to foreigners.